TMI Blog2012 (10) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... angible additional material for formation of belief that income chargeable to tax has escaped assessment on account of excess claim of depreciation allowed in the original assessment. Reopening of assessment on the basis of wrong facts - Non existence of the asset was detected only during the investigation and enquiry of investigation wing – Held that:- The assessee has not conclusively established that the facts pointed out in the investigation report are absolutely wrong. The claim of depreciation was finally disallowed on the ground that the transaction of purchase and lease back were sham, than it cannot be said that the reopening is on the basis of wrong facts. Merger of Order of assessing authority with CIT (A) – Assessee contended that reopening of assessment when the assessment order has merged with the order of CIT(A), then reopening of the assessment is bad in law – Held that:- There is nothing either in the assessment order or in the record available at the time of assessment to suggest that the AO had made any attempt to address this issue. As no such issue was under consideration before the appellate authority and the assessment order was not set aside. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment had become infructuous as the reasons for reopening are based on wrong facts and are non-existing as on the date of passing of reassessment order. 2) The CIT(A) failed to appreciate the fact that, on the date of issue of notice u/s 148 i.e. 24-09-1997, the assessee s appeal was already decided by the then CIT(A) vide order dt.30-01-1997 and the department had filed further appeal before the Tribunal on 04-04-1997. As the original assessment got merged with the CIT(A) order, the notice u/s 148 was issued during the pendency of the appeal filed by the Department, the notice is bad in law and liable to be quashed. 3) The CIT(A) failed to appreciate the fact that if depreciation is disallowed on the ground that the lease transactions are treated as sham and colourable, then the corresponding lease rentals could not be as income. 4 The ground No. 1 of the revised grounds and additional grounds raised by the assesseee is in respect of validity of reopening of assessment; therefore, we will first deal with the legal ground regarding the validity of reopening of the assessment. 4.1 The original assessment order was passed under section 143(3) on 17/10/95 whereby the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoice from the respective parties, hire purchase agreements with the Overseas Sanmar Finance Ltd., , First Leasing Co. of India and M/s Kirloskar Investments and Finance Ltd; lease agreements with M/s Western Paques (I) Ltd ; Asian Electronics Ltd, Patheja Forgings and Auto Parts Manufactgurers Ltd., Residency Foods Beverages Ltd and return-cum-challan under Maharashtra Sales Tax. The learned counsel has submitted that the Assessing Officer after considering the details filed by the assessee passed an order under section 143(3) against which the assessee filed appeal before CIT(A). The CIT(A) partly allowed the appeal filed by the assessee against which the revenue filed further appeal before this Tribunal which was dismissed by this Tribunal vide order dated 9/5/2000. 5.1 The learned AR of the assessee has contended that all the details were filed along with the return and during the original assessment proceedings. Therefore, when no new material/evidence has come in the hands of the Assessing Officer, then in the absence of any tangible material, the Assessing Officer has reopened the assessment merely on the basis of change of opinion. The Assessing Officer was aware o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be reopened on the basis of change of opinion in the absence of any substantial additional material. 6 On the point of the additional ground raised by the assessee, the ld counsel for the assessee has submitted that the assessment has been reopened on the presumption of wrong facts about the installation of the biogas plants at Muzaffarnagar; whereas the assessee has brought on record that the plants were installed at Sangammner. He has further submitted that it is necessary for the Assessing Officer to first state that there is a failure to disclose fully and truly all material facts on the part of the assessee. If he does not record such a failure, he would not be entitled to proceed under section 147. In support of his contention, he has relied upon the decision of honourable jurisdictional High Court in case of Titanor Components Ltd vs ACIT reported in 60 DTR 273/243 CTR 520(B0m). 6.1 The ld counsel has further submitted that the Assessing Officer relied upon the report dated 26.6.96 that the bio-gas plants were not physically found at Sir Shadilal Distilleries Chemicals Ltd, Muzzaffarnagar, UP. However, the asset was never installed at Meerut and during the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is distinguishable on the facts because in the said case the CIT(A) has annulled the assessment on the ground that valid notice under section 143(2) was not issued before the expiry of a period of limitation and consequently, the Assessing Officer issued a notice under section 148 on 13/2/2006, which was quashed and set aside by the honourable High Court on the ground that during the pendency of the proceedings of original assessment, the notice under section 148 could not have been issued. Thus, the learned DR has submitted that the said decision of honourable judicial High Court is not applicable in the facts of the present case. 6.5 On change of opinion, the learned DR has submitted that when new information came to the knowledge of the Assessing Officer, than it is not a case of change of opinion on same facts and material. He has referred the decision of honourable full bench of Delhi High Court in case of Kelvinator India Ltd (supra) and submitted that the honourable High Court has specifically pointed out that in the absence of any tangible material, the reopening is not justified. In support of his contention he has relied upon the decision of honourable Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 years from the end of the assessment year. Therefore, this case does not fall under the 1st proviso to section 147 of I T Act and therefore, the prerequisite condition for exercising the powers under section 147 is existence of reasons to believe that there is escapement of income from assessment. In the return of income, the assessee claimed 100% depreciation on leased out of assets. The assessment has been reopened on the ground that the income chargeable to tax has escaped assessment due to excessive and wrong allowance of the claim of depreciation on leased assets. Thus, the case in hand falls under clause (c)of explanation 2 to section 147 of I T Act, which creates deeming fiction. For the sake of convenience and ready reference we quote explanation 2 as under: Explanation 2. For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by A.D.I.(Inv.), Meerut, along with its annexures, it was found that the said bio-gas plants were not physically found at the above mentioned premises. The statement of Shri M.K.Kamboj, Financial Controller of Sir Shadilal Distilleries Chem. Ltd. was also recorded byA.D.I. (Inv.),Unit-II, Meerut on 24.4.1996 in which he denied the existence of these bio-qas plants claimed to have been supplied by M/s. Indo-Nippon Chemicals Co. Ltd. On the basis of the investigations carried out by the Investigation Wing, Pune and Meerut, it is clear that the assessee had claimed depreciation on the non-existent assets. Therefore, there is a reason to believe that by reason of the failure on the part of the assessee to disclose fully and truly all the material facts about the said transaction, the income chargeable to tax amounting to Rs. 1 crore has escaped assessment. Since not morethan 7 years have elapsed from the end of the relevant asstt. year and the income chargeable to tax which has escaped assessment is more than Rs.50,000/-, this is a fit case for reopening the assessment by issue of notice u/s.148 for which the approval of the C.I.T. is required under the proviso to section 151(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciency of reasoning is not required to be tested as conclusively proved at the stage of reopening under section 148 what is required for exercising of power under section 147 is existance of reason to believe that there is escapement of income from assessment. A belief that the income assessable to tax has escaped assessment can be formed on the basis of tangible material. Once this requirement is fulfilled, then it is within the jurisdiction of Assessing Officer to reopen the assessment under section 147 of the act. Therefore, we are of the view that the investigation report of ADIT (Invg) is very relevant and tangible additional material for formation of belief that income chargeable to tax has escaped assessment on account of excess claim of depreciation allowed in the original assessment. 7.5 Our this view is fortified by the latest decision dated 25th April 2012 of honourable Delhi High Court in case of AG holding private limited versus ITO W. P. (C) 8031/2011 wherein it was observed in para 8 and 9 as under: 8. On a careful consideration of the matter in the light of the rival contentions it appears to us that the contentions of the ld. standing counsel of the Revenue sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt the contention of the petitioner that full and true particulars relating to the receipt of the share capital of 4,50,0O0/- from M/s Quality Security Services (P) Ltd. had been furnished along with the return of income. 9. Be that as it may, even if it is assumed for the sake of argument that those particulars were furnished along with the original return of income filed on 23.3.2005, they cannot be said to be full and true, having regard to the report of the investigation wing on the basis of which the assessment has been reopened. We have already seen that in the report there is specific information that the petitioner company had received an amount of 4,5O,00O/- from M/s Quality Security Services (P) Ltd. The report also mentions that this is an accommodation entry given by the said company to the petitioner company. The relevant bank account particulars, instrument number, etc. have all been reported. In the light of these particulars it is not possible to accept the claim that the particulars allegedly filed by the petitioner along with the return of income are full and true. The investigation report is a pointer and casts grave doubts on basis of evidence/material on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x was the claim of depreciation at 100% allowed in the original assessment which is the crux of the matter in the investigation report as well as the basis of reopening of assessment. When the Assessing Officer had a reason to believe that the income assessable to tax has escaped assessment and the said formation of belief is based on some tangible material, than at the stage of reopening, it is not necessary that the reasoning to be tested as conclusively proved. 9.1 Moreover, when the claim of depreciation was finally disallowed on the ground that the transaction of purchase and lease back were sham, than it cannot be said that the reopening is on the basis of wrong facts. Even otherwise, this aspect has to be considered at the time of adjudication of the issue on merits. It is pertinent to note that the assessee did not raise this objection against reopening of assessment during the reassessment proceedings and therefore, the issue which requires some factual finding cannot be raised first time at this stage. Even otherwise, the assessee has not conclusively established that the facts pointed out in the investigation report are absolutely wrong. In view of discussion and fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction with the claim of depreciation and nature of transaction. The Assessing Officer disallowed the claim of hire purchase charges in paragraph 4 of the original assessment as under: 4.For the reasons given in para 7 of the assessment order for the Assessment Year 1990-91, a addition of Rs. 2,81,412/- is made to the assessee s income on account of Hire Purchase charges. 12. 2 The Assessing Officer disallowed the purchase charges by following the assessment for the assessment year 1990 - 91 wherein this issue was adjudicated by the Assessing Officer as under: Assessee has entered into an agreement under Companies Act 1956 and some of its assets purchased on hire purchase basis. For purchasing these assets assessee has paid service charges of Rs. 1,35,450/-. These expenses being connected with the purchase of capital assets are not to be allowed as revenue expenses. Accordingly, a disallowance of Rs. 1,35,450/- is made. However, depreciation @ 331/3% on this comes to Rs. 45,150/- is to be allowed to the assessee. As such total depreciation allowable to the assessee become Rs. 53,55,190/- 12.3 It is clear from the assessment order that the said disallowance was in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase boiler much prior to entering into lease agreement. In the said case, the lease agreement was entered into subsequently with the sole purpose of enabling the assessee to artificially fulfil the requirement of ownership and use of asset so as to claim depreciation. Thus, the finding in the Special Bench is based on the facts of the said case, which are not similar to the facts of the case of the assessee. 14.2 The alternative contention of the assessee in the said case was that if the depreciation on leased asset was to be disallowed by treating it as a loan transaction, than the capital recovery embedded in the lease rentals should not be charged to tax, which was accepted by the Assessing Officer in all fairness by restricting the net disallowance by reducing the capital component. 14.3 In the case of assessee, the Assessing Officer has taxed the lease rental in all the years whereas he denied the depreciation. The assessee has also paid lease tax; sales tax etc; whereas the lease tax was not paid in case of Special Bench. The learned counsel for the assessee has relied upon the decision of honourable Delhi High Court in case of CIT vs Cosmos Films Ltd in ITA No. 1404/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The information sought from M/s Patheja Brothers Forgings Stampings Ltd., was not furnished by the company on the ground that there was a major fire on 18/12/94 where all records got destroyed and no further details were possible to be furnished. 15.1 In case of Asian Electronics Ltd., it was submitted that the assets sold to the assessee and taken back by Asian Electronics Ltd on lease. Thereafter, the said assets were sub-leased to Maharashtra State Electricity Board (MSEB) and part of assets were capitalised in the books of accounts of M/s Asian Electronics Ltd., the company valued these assets as per the Companies Act at Rs. 27,04,901/- whereas the written down value of the assets as per I T Act was nil as the said company claimed hundred percent depreciation. The Assessing Officer has given the finding that the assets remained with the control of the lessee and never moved from the place where already installed by the lessee. It was all proper exercise with a view to help the assessee to avail depreciation at 100% and nothing more. The Assessing Officer was of the view that all transactions entered into by assessee were such where Indo Nippon Chemical Ltd although buying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Induslnd Bank Ltd (supra). The Special Bench has taken some broad features of finance lease in para 5.14 as under: 5.14 Thus it is apparent that the broader guidelines laid down by the Hon ble Supreme Court in the case of ABB Ltd have been reiterated in the latter case of Association of Leasing Financial Services Companies v. Union of India Ors. On a fair reading of the aforenoted two judgments rendered by the Hon ble Supreme Court in the light of the Guidance Note and the AS 19, we can draw the following broad features of finance lease :- - Such a lease is non-cancellable and there is a fixed obligation on the lessee for payment of lease money. In case lease is terminated prematurely by the lessee, the lessor is entitled to recover his investment with expected interest. - Such a lease is always for a fixed period, which period is decided by taking into consideration the economic life of the asset. - The initial lease period is settled in such a way so as to fully recover the investment of the lessor together with interest thereon. - Lessor is always interested in the recumbent of his investment with interest in the shape of rentals over the period of lease and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by the lessee and the lessor is only entitled to receive the rental return without owning any risk of damage and usefulness of the asset. Even the damage in transit, damage during the installation or operations or any liability to pay the taxes to the ownership of the asset was on the lessee and not borne by the lessor. Thus, it is clear that all the risk and rewards of the ownership of the asset vested with the lessee and not with the lessor. 17. In view of the above facts and circumstances, we are of the considered opinion that the case of the assessee is fully covered by the decision of Special Bench of this Tribunal in case of Induslnd Bank Ltd (supra). Though, the assessee has cited the decision of honourable Delhi High Court as well as honourable Madras High Court; however, these decisions are applicable in the specified facts and circumstances of the particular case. The Special Bench of this Tribunal has given the finding by following the decision of honourable Supreme Court and therefore, in our view the decision of Special Bench of this Tribunal is applicable in the case of the assessee. Accordingly, we uphold the orders of the authorities below on the point of dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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